Wednesday, August 25, 2010

August 25, 2010Sen. Michael Bennet’s recent appearance in Greeley, Colorado is sure to set political tongues wagging–Bennet is quoted as saying that though trillions of dollars of Federal debt has been incurred through spending since he was appointed to the Senate in January of 2009, “we have nothing to show for it”:Michael Bennet, D-Colo,at a town hall meeting in Greeley last Saturday, Aug 21 said we had nothing to show for the debt incurred by the stimulus package and other expenditures calling the recession the worst since the Great Depression. [...]Regarding spending during his time in office he said, “We have managed to acquire $13 trillion of debt on our balance sheet” and, “in my view we have nothing to show for it.” Speaking of the debt, he said our debt almost equals the economy. Regarding the current job situation, Bennet said the situation has been dire for over a decade saying, “We have created no net new jobs in the United States since 1998” which were the last two years of the Clinton administration. Pointing to a slide showing budget expenditures, he said that currently 65 percent of the budget was for social security, Medicaid and Medicare expenditures and that we could not grow our way out of debt.Regarding the expiration of the Bush tax cuts Bennet would not commit to a position on whether to extend them simply saying, “I hope we look at it comprehensively.”When asked about a recent report showing that government employees make more than their private sector counterparts said, “This is a time when we need to restrain wages in the public sector.” He said we need to make sure “our wages are not growing faster than inflation or faster than our growth.” Bennet also received a question about whether he would support card check and declined to give a firm answer saying, “I have not been a sponsor of the employee free choice act and the bill as written will not come to the floor to a vote.” He also said, “I believe strongly in the right of workers to collectively bargain and organize free from intimidation.” [emphasis added]The Greeley Tribune’s quote is identical, adding a laundry list of things that Bennet feels have not been “invested in” adequately (the $787 billion American Recovery and Reinvestment Act apparently notwithstanding):“We have managed to acquire $13 trillion of debt on our balance sheet,” he said. “In my view we have nothing to show for it. We haven’t invested in our roads, our bridges, our waste-water systems, our sewer systems. We haven’t even maintained the assets that our parents and grandparents built for us.”Bennet’s votes, in support of President Obama’s spending plans–including ARRA, have resulted in billions of dollars spent per day, and trillions of dollars of new debt.But even $10 billion in the most recent “edujobs” bailout may have no readily discernible impact on Colorado schools, despite the projections made by Bennet.The Bennet campaign released a snippet of video it recorded from the speech, with Bennet addressing rural education:A Denver Post fact check of the following ad from Karl Rove’s Crossroads GPS concluded that the numbers add up to billions per day (whether or not the spending is a good idea):Claim: “Since his appointment, Michael Bennet has voted to spend an average of $2.5 billion every day.”Crossroads GPS television adFacts: Michael Bennet has, in fact, voted for legislation that if you add it all up and divide by the days he’s been in office, comes out to nearly $2.5 billion a day. [...]Add all that up and it comes to $1.36 tillion.[sic] Divide by 568 (the days between Bennet’s Jan. 22, 2009 swearing-in and the Friday before the ad ran), and that’s $2.4 billion.Vince Carroll of the Denver Post views Bennet’s campaign rhetoric as incompatible with his actual record:Bennet, you may have noticed, is campaigning as a fiscal hawk. According to a recent report in this newspaper, the Colorado senator touts deficit reduction at town hall meetings as vital to the nation’s health.To emphasize his seriousness, Bennet has sponsored the Deficit Reduction Act, which would cap the federal deficit at 3 percent of GDP after 2012 (when it would be capped at 4 percent), and supports a commission that will recommend a federal debt-reduction plan. Bennet also voted for “pay-as-you-go” rules that require offsetting revenue for any tax cuts or spending hikes.If you’re partial to stern warnings about the growing national debt and grand schemes for shrinking it, Bennet is your man. But be sure to avert your eyes from his actual record.Pay no attention to the contrast between Bennet’s green-eye-shade rhetoric and his drunken-sailor votes. Rest assured that 18 months of supporting one lavish spending and bailout bill after another provide no hint whatsoever of Bennet’s core fiscal philosophy.

Obama has faced some criticism for his latest vacation, his sixth since taking office. At a time when painful unemployment numbers continue to bear down on the tattered economy, many are frustrated that the nation’s leader is enjoying another luxurious trip. On CBS’ “The Late Show” Tuesday night, David Letterman took a jab at the president, saying: “He’ll have plenty of time for vacations after his one term is up.”

The Housing Holocaust Existing Home Sales Plunge, Market FollowsBy MIKE WHITNEYDon't look now, but someone just pushed the housing market off a cliff. The National Association of Realtors announced on Tuesday that the sales of existing homes fell a staggering 27.2 per cent to a seasonally adjusted rate of 3.83 million units. This is the lowest number of sales since 1995. The reaction on Wall Street has been swift. Shares plunged in a wild sell-off that pushed stocks down more than 100 points in a matter of minutes. US Treasuries rallied on the news, sending bond yields lower as jittery investors sought safety from the ongoing avalanche of dismal economic data. The 10-year slid to 2.49 per cent while the 2 year note dipped to 0.46 per cent. Bond yields are a gauge of investor pessimism. At present, confidence in the management of the economy is at a nadir.Analysts expected that housing sales would suffer after the Obama administration's First-time Home-buyer credit expired in April, (deals had to close by the June 30 deadline) but they hadn't expected a real estate holocaust ending in sales that are a paltry 25 per cent of their peak in 2005. The shocking drop in sales has added 2.5 months to the massive stockpile of unsold homes that is presently clogging the system and threatens to send prices into freefall. The pace of existing home sales is now slower than any time on record.This latest housing smackdown will put more pressure on homeowners who are already in arrears or trying to decide whether its in their interest to make payments on a $300,000 mortgage for a house that is currently worth only $150,000. Expect foreclosures to rise sharply. 24 per cent of all mortgages already have negative equity. That's 11.2 million loans. According to housing expert Charles Hugh Smith:"Since there are about 47 million outstanding mortgages, and 24 million homes owned free and clear (no mortgage), then we can calculate that free-and-clear owners hold about a third of the $16.5 trillion in home equity -- roughly $5.3 trillion. That leaves about $1.2 trillion in equity spread amongst the 47 million homes with mortgages.....“Never before have American homeowners with mortgages held such a thin slice of equity, and never before have so many homeowners been at risk of negative equity. Predicting accurately how many homeowners end up underwater is impossible, as the future of home prices is unknown. But anyone claiming that the number of underwater homes can't rise further is on thin ice." ("Real Estate: The Worrying Numbers Behind Underwater Homeowners", Charles Hugh Smith, Daily Finance)It's been four years since problems with subprime mortgages triggered the deepest slump since the Great Depression. Still, housing has yet to find a bottom. $6 trillion in home equity has been wiped out, leaving baby boomers scrambling to make up for lost wealth so they can add to their battered retirement savings.Foreclosures have exceeded 300,000 for 17 months in a row. 10 per cent of the population is presently subsisting on foodstamps and handouts. The unemployment lines have lengthened in every city and town across the country. The shelters are full, the food banks are empty, and the economy is flat on its back. And, yet, not one banker has been indicted, prosecuted, arrested, convicted or sent to prison. Where's the justice?Today's bleak housing numbers are not the result of a "cyclical downturn", but of a crime perpetrated on the American people. There must accountability. Someone's gotta pay!

Third Hindenburg Omen ConfirmationAug 25, 2010The market is now down 3.4% from the August 12 open, when the first Hindenburg Omen was sighted, on route to validating the prediction of a 5% drop.However, in the process it continues getting worse and worse – today we just got a third H.O. confirmation, and a 4th standalone HO event, as the market seems to be getting ever more schizophrenic, with increasing new highs and new lows, while the undercurrent is one of ever increasing implied correlation as noted earlier, as ever more asset managers simply rely on levered beta “strategies” to redeem their year.Unlike 2009, however, this time the trick won’t fly, as it appears the market’s downside potential is finally starting to be appreciated.

Should the Rich pay More in Taxes?Peter Schiff Aug 25, 2010In a CNBC debate last week, former Labor Secretary Robert Reich presented a set of contradictory beliefs that unfortunately reflect the conventional wisdom of modern economists. In a discussion with Wall Street Journal columnist Stephen Moore, Reich correctly and comprehensively listed the reasons why American consumers could spend so lavishly before the crash of 2008 and why they can no longer keep up the pace. But instead of making the logical conclusion that former levels of spending were unsustainable and that spending should now reflect current conditions, he advocated that government take on additional debt so that tapped out consumers can spend like they used to.To achieve this, Reich called for lowering taxes on working Americans and raising taxes on the rich. He argued that middle-income Americans are more likely to spend additional dollars while the rich are more likely to save and invest. As a “demand-side” economist, Reich made clear that spending is superior to savings and investing as a catalyst for growth.To put it simply: Reich believes that the cart pushes the horse. In his worldview, businesses produce goods and services simply because consumers spend. Therefore, anything that increases spending fuels growth. Unfortunately, he fails to see what should be strikingly obvious: capital formation must precede production, which then allows for consumption.In a complex society like ours, those relationships are hard to see. However, if we break it down to a simpler level, it becomes more obvious (as I try to accomplish in my new book: How an Economy Grows and Why it Crashes). For example, let’s take a look at a simple barter-based economy consisting of only three people: a butcher, a baker, and a candlestick maker.

If the candlestick maker wants cake, he can’t simply demand that the baker hand it over. The cake needs to be produced, and the baker has to expend labor and material to produce it. Unless the candlestick maker offers the baker something of value in exchange, the cakes won’t get baked. The ability of the candlestick maker to demand cake from the baker is a function of his ability to supply candles to trade. Without production, consumption can’t occur.What if the candlestick maker gets sick and produces no candles? As the baker would be unwilling to give his cakes away, he would likely stop baking cakes for the candlestick maker. Economic activity would naturally contract until the candlestick maker recovers.But according to Reich, if the candlestick maker doesn’t have anything to trade, the government should step in and give him candles. But where will the government get them? It could take them from the candlestick maker; but if he is not making candles, how will he pay the tax? Even if there were a few candles left to tax, any that the government took would simply transfer demand from the candlestick maker to the government. No new demand is created.Alternatively,if the butcher is still healthy, the government could tax him, and give his steaks to the candlestick maker to buy cakes. However, this doesn’t create new demand either. It simply transfers demand from the butcher to the candlestick maker.Some may feel that a barter-based metaphor doesn’t hold water because the ability to expand the money supply and create credit gives an economy far more flexibility. This is a deceptive argument. Although money is more efficient than barter, it doesn’t change the dynamic between production and consumption.But Reich suggests that printed money can stimulate demand just as effectively as real candlesticks. But what good will the paper offer the baker if there are no candlesticks to buy? All the baker can do is bid up the prices of those goods, like steaks, that continue to be produced. Similarly, if the government simply prints money and gives it to people to spend, no new production occurs. Prices merely rise to reflect the increase in the supply of money relative to the supply of consumer goods.In a more complex economy, the relationship between production (supply) and spending (demand) still holds. Every consumer either lives off his own productivity or the productivity of someone else. When individuals work, the wages earned result from the productivity of labor. The ability to consume is directly related to the production of goods or services that result from one’s efforts. However, if people waste their labor in unproductive jobs, little real demand is created.In the Soviet Union, everyone had a job, yet workers had to stand in line for hours for basic necessities. Although everyone worked (for the government), production was too low. This lack of production meant wages delivered relativity little in the way of purchasing power.Since production cannot be created by government stimulus, neither can demand. To the extent that there are savings, demand can be brought forward by stimulus — but only at the cost of future demand, plus interest. If stimulus could produce demand, then no nation would be poor. Taken to its logical end, Reich’s argument suggests that African poverty would be wiped out if African governments simply printed money more freely. In reality, Africans are not poor because they lack currency to spend; they are poor because their corrupt and inept governments inhibit production by soliciting bribes, denying property rights, abrogating contracts, preventing the accumulation of capital, and nationalizing profits.Reich is correct about one thing: Americans are indeed broke. But rather than encouraging the country to spend itself deeper into debt, he should call for greater savings so that we have the means to invest in new businesses and new industries. That is the true road back to solvency, but it will only work if we have less government spending, fewer regulations, lower taxes (particularly on those with the highest propensity to save and invest), and higher interest rates.Unfortunately, Reich and his allies are calling the shots in Washington. The country cannot recover until the only thing politicians stimulate is demand for new economic leadership.

Positive gross domestic product readings and other mildly hopeful signs are masking an ugly truth: The US economy is in a 1930s-style Depression, Gluskin Sheff economist David Rosenberg said Tuesday.Writing in his daily briefing to investors, Rosenberg said the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.Rosenberg calls current economic conditions "a depression, and not just some garden-variety recession," and notes that any good news both during the initial 1929-33 recession and the one that began in 2008 triggered "euphoric response.""Such is human nature and nobody can be blamed for trying to be optimistic; however, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the market at all times," he said.The 1929-33 recession saw six quarterly bounces in GDP with an average gain of 8 percent, sending the stock market to a 50 percent rally in early 1930 as investors thought the worst had passed."False premise," Rosenberg said. "And guess what? We may well be reliving history here. If you're keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3%."Rosenberg's warning comes as a slew of major analysts—Goldman Sachs and JPMorgan among them—have slashed GDP projections for 2010 to the 1.5 to 2 percent range.Chicago Federal Reserve President Charles Evans said in a speech Tuesday that the risk of a double-dip recession has escalated. He said government programs to help distressed homeowners have been ineffective and aren't helping the pivotal housing sector recover.The dour outlooks come on the same day that the National Association of Realtors said home sales reached a 15-year low in June, dousing hopes that the industry had reached a bottoming point.Rosenberg points out that the "overall economic malaise" has come despite aggressive efforts by the Federal Reserve to stimulate the economy through rate cuts. The central bank itself has scaled back its economic projections, has held steady on its balance sheet, and could be announcing another round of quantitative easing measures at its Jackson Hole summit this week."How's that for a reality check," Rosenberg said. "It's not too late, by the way, to shift course if you have stayed long this market."

David Morgan is the reigning God-Emperor of Silver Investing. We're fans of his here at Sound Of Cannons Towers East and several of our editors have made some pretty pennies off of Mr. Morgan's usually excellent advice. Watc, listen or ignore at your own peril.

Everyone loves money. Even people like myself who abhor the abuse of money and commerce, who understand the fraudulent nature of the system we live in, still work hard and save so that we might attain a sense of stability within that system. Many people see money as a focal point to their existence. But is it really money that they are after, or is it something else entirely? In truth, money represents ‘security’ in the minds of the masses. Money affords us the ability to survive, and the more of it we have, the safer we all feel. Because we subconsciously associate the extension of our very life with the variable health of the economic structure in which we live, we tend to become unwitting devotees to its continued existence, even if it is corrupt and condemned to failure. We gullibly deny the system or the currency that supports it is doomed to the contrary of all evidence because, even though it has beaten us bloody, we have never known anything else.In light of this entrenched way of perceiving things, especially in the U.S., it is difficult enough to convince some people that the economy is in fact not providing the security they desire, but is actually destroying their future completely. To explain to them that this is deliberate, that the economy is designed to self-destruct, that is another prospect altogether.Many people hit a proverbial wall on this issue because they simply cannot fathom that certain groups of men (globalists and central bankers) view money and economy in completely different terms than they do. The average American lives within a tiny box when it comes to the mechanics and motivations of finance. They think that their monetary desires and drives are exactly the same as a globalist’s. But, what they don’t realize is that the box they think in was BUILT by globalists. This is why the actions of big banks and the decisions of our mostly corporate establishment run government seem so insane in the face of common sense. We try to rationalize their behavior as “idiocy”, but the reality is that their goals are highly deliberate and so far outside what we have been taught to expect that some of us lack a point of reference. If you cannot see the endgame, you will not understand the steps taken to reach it until it is too late.In the past we have covered numerous instances in which global bankers have admitted to fraud on a massive scale, fraud which is now crushing our already fragile economy. We have covered the private Federal Reserve and how it knowingly facilitated the creation of the housing bubble, as well as how it is now inflating a Treasury bubble which is soon to implode. We have covered Goldman Sachs and its efforts to promote and sell toxic derivatives all over the world while at the same time betting against those derivatives on the open market. We have covered the manipulation of gold and silver markets by companies like JP Morgan, which have recently been exposed by whistleblowers and GATA investigations. And, most importantly, we have executed in-depth analysis on the growing weakness of the U.S. dollar in preparation for severe currency devaluation. These revelations raise questions, which is natural, but they also elicit misconceptions and reckless knee-jerk reactions, especially when broaching the fact that the illegal strategies of international banks are part of a greater agenda.Below, we will examine some of the most common narrow minded responses to the issue of engineered economic collapse, as well as why people think the way they do when the “semi-sacred” subject of money is involved…1. The economy is too complex to be controlled by just a handful of people…This response often comes from people who make presumptions on economics, rather than actually educating themselves on how the system works. From the outside looking in, the world of finance appears chaotic; a mixture of mathematical and legal standards swirling in a void of mass psychology. Many Americans are either frightened off by the seemingly complicated field of study, or they find it rather boring and not worth their time. This, however, does not stop them from assuming that they know how money works.The problem is that just because a person participates in his economy daily, it does not mean he has any understanding of how it operates. Many watch television on a daily basis, but few have any idea how the picture actually gets onto the screen, or how to fix a television once it is broken. Sadly, our egocentric culture has led a substantial portion of the public to imagine that they are experts on EVERYTHING, and thus, true researchers in the fields of economics and globalism get reactions like the one above constantly.At bottom, once all the quasi-technical biz-babble used by mainstream talking heads is removed from the equation, economics is rather simple. Supply and Demand will always be at the center of any and every economy, regardless of the political atmosphere it exists in. These two fundamental factors can be manipulated to a point, by the creation of artificial supply, or the conjuring of false demand. This is achieved in many ways by global bankers, but primarily through domination of the issuance of currency, the ability to change interest rates at will, as well as the ability to inject or remove incredible sums of money from any market.A perfect example is the suppression of silver prices by JP Morgan:http://www.zerohedge.com/article/whistleblower-exposes-jp-morgans-silver-manipulation-schemeGold and silver represent competing currencies to the fiat dollars created by the Federal Reserve, and suppressing the value of these commodities helps to ensure that the public will never see them as a viable alternative to paper assets. JP Morgan, who along with other international banks has the ability to throw around massive quantities of capital wherever they please, suppresses the value of physical silver by issuing paper securities for silver that doesn’t actually exist (creating an artificially high supply), and naked short selling silver markets to drive them lower (creating the false impression of low demand).Another good example of economic manipulation is the private Federal Reserve’s strategy during the 90’s under Alan Greenspan to artificially lower interest rates, allowing banks to issue credit at historical levels for over a decade. Linked below is an article from Ron Paul’s ‘Texas Straight Talk’ dated March, 2007, before the housing market even began its full swan-dive. In it, he discusses the Federal Reserve’s direct role in the creation of the housing bubble:http://www.house.gov/paul/tst/tst2007/tst031907.htmMen like Ron Paul, Peter Schiff, Gerald Celente, Jim Rogers, and many others were able to predict long before hand that the Federal Reserve’s actions were creating an explosive mortgage and credit bubble, yet, we are supposed to believe that the Federal Reserve had “no idea” that their actions would result in a debt implosion?Catherine Austin Fitts, former Assistant Secretary of Housing and Commissioner of the U.S. Department of Housing and Urban Development under the first Bush Administration stated conversely that the mortgage bubble was absolutely not an accident, and that she had witnessed outright and deliberate fraud on the part of the U.S. government and the Federal Reserve Bank in creating the bubble. The fact that disturbed her most, however, was her discovery that only a small handful of international banks were responsible for the perpetuation of toxic mortgage debt, not just in America, but around the world:http://solari.com/blog/?p=2058Goldman Sachs (one of the primary globalist banks involved in the igniting of the debt crisis) was caught red-handed selling toxic derivatives to investors and governments all over the planet while at the same time betting against those derivatives on the market. Goldman even bet against mortgage securities the bank itself created!http://www.businessweek.com/news/2010-04-26/goldman-sachs-bet-against-its-own-deals-senate-s-levin-says.htmlThis is sort of similar to a car maker selling vehicles without brake lines, then placing bets that their clients will crash and burn. Essentially, it is blatant and sociopathic fraud! Goldman’s actions directly contributed to credit collapses in numerous countries, including Greece, and here in the U.S.The idea that global banks can turn the economy on and off like a light switch may be a stretch, but the vast majority of evidence shows that they do have the ability to shift the direction of markets to a point, as well as the ability to spur the growth of bubbles that eventually lead to recessions, depressions, and beyond. In fact, if one examines the U.S. economy from the inception of the Federal Reserve in 1913, they would find that the past century has been nothing but a series of engineered equity bubbles designed to slowly hobble, but not completely cripple, our financial system and our currency, at least, until recently. Like a steam locomotive on a collision course with a bottomless canyon, globalist banks can slow or speed up the pace of our descent, but the final destination never changes.Now that we have established that market collapses can be created by a small handful of bankers and done knowingly, lets move on to the next most common sheeple-like talking point.2. Yes, international banks triggered the meltdown, but the “greed of Capitalism” is truly to blame (i.e. Its all the Republican Party’s fault)…First off, if you’re parroting the fiscal debate points of two dimensional socialist gatekeepers like Michael Moore, then you’re already hopelessly lost in the mind warping hedge maze of the false left/right paradigm. You should stay as far away as possible from adult conversions on economics, especially if you plan on associating the “greed” of capitalism and corporatism with the Republican Party alone.News Flash! Barack Obama received far more in corporate campaign donations (including donations from BP and Exxon) than McCain did. Both Bush Jr. and Obama increased government spending to record levels meaning Neo-Conservatives are in no way “conservative” (as a true Republican is supposed to be). Obama has consistently surrounded himself with banksters and corporate lobbyists, including various hobgoblins from the bowels of Goldman Sachs. BOTH major parties are owned and operated by global banks. This is a cold hard undeniable truth of our political system. There is no way around it. Learn it, accept it as reality, and stop trying to blame one side or the other for problems that both sides created! If you cannot do this, your view of our cultural state of affairs will always be horribly skewed and your insights on our social problems will be utterly worthless.While wannabe socialists desperately clamor to point fingers at the free market ideology as the cause of all our ills, the fact is that none of us have ever lived in a truly free market system. Since the inception of the Federal Reserve in 1913, all markets and even our own currency have become more and more vulnerable to manipulation by the banking elite. We have lived our entire lives in a rigged market, not a free market. To blame the very concept of Capitalism for our current dire circumstances is not only naïve, it is dangerous. Globalists would like nothing better than to promote the illusion that “too much freedom” led us to this disaster, and that severe controls must be put into place to ensure that it “never happens again”.3. Global banks would never engineer the collapse of the U.S. economy or the Dollar. It makes them too much money…This often heard song and dance ties in with the number two comment above. Again, the assumption is that the globalists only do what they do out of an “uncontrollable greed for money”. This perpetuates a couple fallacies. First, it encourages the false belief that the end concern for the Elite is the accumulation of riches. Central bankers have the ability to PRINT all the money they want from thin air! Remember, the Federal Reserve has never been subjected to a full audit, meaning they could easily create billions if not trillions without any oversight whatsoever. Greed for money, to them, is surely an absurd notion. What they do want, more than anything else, is social power. They want control over every living human being without question. All other concerns are secondary.The next fallacy underlying the above argument is the conjecture that the U.S. economy is somehow indispensable to global banks. This is simply not so. Where we see the economy as an extension of our culture and ourselves, the Elites see financial systems as mere tools in the pursuit of a greater goal: World Government. Imagine you are building a house. Once your saw has fulfilled its intended role of cutting the wood, do you cling to it, or do you throw it aside and pick up a hammer? This is how globalists look at financial systems. They are perfectly willing to cast off the U.S. economy like a snake shedding skin if it brings them closer to attaining their ultimate aim.The same goes for the Dollar. The Greenback may be the premier world reserve currency now, but that can and likely will change very quickly over the next couple years. The Dollar is a device that has outlived its usefulness as far as global bankers are concerned. The IMF has on several occasions made it clear that they eventually intend for the SDR (Special Drawing Rights) to replace the Dollar as the world reserve currency, and they have openly admitted that it will one day be established as a global currency. IMF press releases make this development sound far off and away, but SDR accumulations by countries around the world have risen dramatically in the past year. This along with other factors we will cover (namely China’s preparations to dump their U.S. T-bond holdings) show that IMF actions indicate they are preparing for a collapse of the Dollar now!4. China would never dump U.S. Treasuries because it would hurt them as much as it hurts us…The theory that China is somehow fused to the U.S. in a kind of symbiotic seesaw relationship that can never be broken is so ingrained among mainstream American financial analysts it simply will not die, regardless of how much contradictory evidence you show them. It really is like a mental disease which causes MSM pundits to go into involuntary Tourettic convulsions every time you mention the words “Treasury bond dump”. America and China are not conjoined twins, and one can survive without the other. We have covered the China issue over and over again, and I will not rehash all that evidence here. To lay it out simply: China has re-engineered its economy towards consumption and importation rather than relying on exports. The IMF has talked about this on many occasions with apparent excitement:http://www.imf.org/external/np/tr/2010/tr072910c.htmChina has also finalized the ASEAN trading bloc which has combined export markets at least equal to that of the U.S. Meaning, China already has another place to send its exports besides America.Most importantly, China must increase their currency’s value if their new consumer based system is to survive. Allowing the Yuan to rise sharply in value will revitalize the buying power of the Chinese populace making greater consumption possible. Indeed, China MUST dump their Treasury holdings and pump up the Yuan if they are to hold their economy together. And, the Federal Reserve has given China every reason to turn its back on Treasuries through never ending liquidity injections. This is not to say that a U.S. collapse will not affect them, it would negatively affect the entire world. However, China has positioned itself to survive, and perhaps even thrive with their economic expansions into Africa, and their new financial agreements with Germany.Finally, the Chinese have been very forthcoming over the past week about plans to drop Treasuries. China has dumped over 7.7% of their U.S. T-Bond holdings since January, including the biggest T-bond dump on record this month. They have openly admitted to a plan to diversify away from the Dollar:http://www.bloomberg.com/news/2010-08-17/china-cuts-long-term-treasury-holdings-by-most-ever-as-u-s-yields-decline.htmlI’m always fascinated by those economists who vehemently deny China will ever turn away from the U.S. Dollar while they are doing so right in plain view. Are MSM analysts simply crazy? I don’t know, but it would explain a lot…5. Sure, bankers took advantage, but it’s really the American people’s fault for getting suckered…Yes, a sizable portion of the American public can be gut wrenchingly stupid. It hurts my head and my feelings to see people act so idiotic, it really does. The problem with this argument though is that when it is taken too far it becomes an attempt to divert blame away from the criminals and place it on the victims. If you knowingly leave your front door unlocked in a bad neighborhood and you find your home ransacked the next day, then you are partly responsible. But, we cannot forget that the neighborhood is “bad” in the first place because of the criminals, not the people who don’t lock their doors.Just because global banks can sucker the public doesn’t mean they should, or that they cannot be judged for it. The crime ultimately rests on those men who made the conscious effort to destroy this country, and the blame rests with them as well. I see the attempt to parlay the economic collapse into the lap of the American people very often lately, especially from bankers who now claim that it’s the American public’s fault entirely. Why? Because they will not spend more, they will not take on more debt, they will not take on more risk, and they will not believe hard enough in the recovery that never was. Imagine a serial rapist behind a podium admonishing women for carrying pepper spray. It’s eerily similar…6. Ok, maybe the banks are causing a collapse, but to say the government is helping them is just crazy conspiracy theory…Why is it that the Federal Reserve has never been fully audited? Why is it that when Ron Paul tried to pass HR 1207 Federal Reserve Transparency Bill, it was muddled in committees and then eventually derailed? Why is it that banks like Goldman Sachs have been caught, yes caught, setting the stage for an economic implosion in this country, yet no government indictments have been formed to criminally prosecute them? Why are these men still roaming free like locusts to continue pillaging at will? Are we supposed to feel lucky that we get table scraps like Bernie Madoff behind bars while the Federal Reserve commits Ponzi fraud on a scale that dwarfs his?Our government, both major parties, is owned lock stock and barrel. This is why there are no satisfactory answers for the questions posed above. Elements of the U.S. Government including almost every president since 1912 have not only turned a blind eye to Globalist activities, they have offered their full support to the bankers.Nixon removed the Dollar from the gold standard in 1971 giving the Fed free reign to print as much fiat as they wished without limitations. In 1980 the Depository Institutions Deregulation and Monetary Control Act was passed placing all banks essentially under the rules of the Federal Reserve. The Glass-Steagall Act which kept investment banks and depository banks separate was repealed under a Republican majority in the Senate, and then finalized by Democratic President Bill Clinton in 1999. 30 years ago, banks that held your home mortgage were for the most part required to keep that mortgage until it was finally paid. But, a series of government decisions spanning that period and influenced by global banks allowed for the “securitization” of mortgages, leading to the creation of “derivatives”, which were then used by corporate mobsters like Goldman Sachs to destroy our financial system. Last, but certainly not least, both the Bush and Obama Administrations pressured Congress into passing highly unpopular bailout legislation which basically rewarded the same banks that created the credit crisis with trillions in taxpayer dollars (yes, the bailouts are now actually in the trillions, not billions). This led to the coining of the term “too big to fail” (or “too big to jail”). Our Government has been nothing but complicit in the banker takeover of this country. To debate otherwise is to invite embarrassment.I haven’t even scratched the surface of government involvement in the collapse of our economy. Cases like the Savings and Loan crisis of the 1980’s led to serious prosecutions and jail time for more than 1100 criminal bankers, but this only caused the government to respond by changing investigation rules to make it even more difficult to catch the high level fraudsters in the act! Linked below is an interview between Max Keiser and bank regulator Prof. William K Black who outlines our government’s complicity in the breakdown of the country it is mandated to protect:http://www.youtube.com/watch?v=5Bf5Frx1lZkElites destroy cultures to make way for new philosophies; their philosophies. Its not so much “conspiracy theory” as it is a widely admitted methodology. Corporate globalists believe in global government on their terms and they barely try to hide it. If someone thinks this sounds “fantastical” then they haven’t been paying the slightest attention. When one understands how Elites view economy, and realizes their primary motivations, the fact that they purposely triggered a collapse is perfectly logical. Nothing besides all out war inspires more fear and desperation in a society than a financial upheaval. Such elements on a mass scale allow changes in our collective psychology that were never possible before. Most people tend to falter under such an overwhelming threat and turn towards any authority (or fake authority) to save them from harm. Some people scoff at this idea, but it is likely they have never actually been in the wake of a real national catastrophe before. Men, especially those who know little of themselves, can change quickly in the face of calamity. The Elites recognize this, engineer tragedy, then waltz into the aftermath to merrily lord over the rubble.Will their plan work? I think not, but I’m an optimist (no, really). The pursuit of total control and total power seems rather infantile to me, be it on an impressively psychotic level. Although, if we are made to forget who the real enemy is, then I think they do have a chance at success. That is how they have remained successful to this point. Only now does the average man have such immense knowledge at his fingertips, the knowledge to bring down a line despots and tyrants that have reigned for centuries. If only the average man was not so easily deterred by WMD’s (Weapons of Mass Distraction). The Elites will likely ignite some wars, tempt us into in-fighting, and fabricate enemies like Al Qaeda out of the ether. As the slogan goes, “Order Out Of Chaos”. Whatever happens, our eyes must remain fixed on the root of the problem; the bankers, and nothing else.Globalists are not invincible, they are not untouchable, they are not even all that brilliant. They are human, and they have made many mistakes. The engineering of an economic meltdown really changes nothing. Hired thugs, useful idiots, corrupt officials, even hyperinflation, all tiny obstacles when considering the world we could have if the Elites were finally made to face the reckoning they deserve. Americans once took on the greatest empire on Earth. We once took a feared king to task. Are a bunch of frothing corporate bankers really so daunting? All that is needed is a principled movement with the will to see justice done, and I believe we have that already.

COLUMBUS, Ohio – Admittedly wary of losing touch, President Barack Obama returned to the comfort of backyard politics on Wednesday, assuring a polite gathering of middle-class neighbors that the economy is coming around "slowly but surely."At the brick-and-shingle house of the Weithman family, Obama's questioners showed no interest in the divisive midterm elections or other matters gobbling up the political debate. They wanted to know what he was doing on jobs, health care, pensions and child care. In turn, Obama got what he wanted: a sunny platform to engage voters and promote his agenda.Obama hadn't even left the property, though, before he got off message by answering a reporter's shouted question about a national controversy — plans for a mosque and community center near the site of the Sept. 11, 2001, attacks on New York. Obama said he had "no regrets" about his stand that Muslims have the right to build the mosque.In the midst of a fundraising tour that has generated more than $3 million for Democrats, Obama seemed refreshed to be having his chat in the Weithmans' backyard.The neighbors sat scattered in lawn chairs and picnic tables. The president held forth with a microphone, jacket off, sleeves rolled up, as if he were just talking with old friends. Reporters were packed in all the way to the tomato garden."Look, I'll be honest with you," Obama said over the whirring of lawn mowers in the distance. "Sometimes when you're in Washington, you get caught up with the particular legislative battles or, you know, the media spin on certain issues. And sometimes you lose touch in terms of what folks are talking about around the kitchen table."So no one missed the point, Obama actually sat at the kitchen table with Joe and Rhonda Weithman and their two kids.His broader discussion with neighbors predictably centered on the economy, with unemployment at 9.5 percent nationally and topping 10 percent in Ohio. Obama took questions about how to bring manufacturing jobs back to the U.S., how to breathe life into the sagging housing market and how the mammoth health care law he signed will provide real help to people."Slowly but surely we are moving in the right direction," Obama said of the economy. "We're on the right track."That continues to be a tough sell. Only 35 percent of those polled in a new Associated Press-GfK poll say the country is headed in the right direction. Just 41 percent approve of the president's performance on the economy, a slipping number. In his favor: Three-quarters say it is unrealistic to expect noticeable economic improvements in the first 18 months of a president's term.In every stop, Obama has been trying to convince people that his efforts to improve the economy will take time and that matters would be disastrously worse without the steps his administration has taken. Yet those, too, are often underwhelming political arguments for the millions who have been out of work long-term and want faster results.In the setting of the Weithmans' yard, Obama took a break from his standard campaign speech. Gone, at least for one event, were his claims that Republicans offer the country nothing but fear, cynicism and recklessness.But the partisan words returned quickly. He was back to his well-worn story that Republicans had driven the economy into a ditch as he spoke at a fundraiser for Ohio's Democratic governor, Ted Strickland, who is fighting for re-election.The president capped his three-day, five-state trip with a $700,000 fundraiser in Miami for Florida Democrats, where he repeated his attacks on Republicans.

Castro lashes out at secretive Bilderberg Group19 August, 2010, 17:38Former Cuban President Fidel Castro continues to taunt the West, this time with an article that accuses the ultra-secretive Bilderberg Group of conspiring to create a one-world government.Despite his advanced age and periodic bouts with an intestinal disorder, 84-year-old Castro continues to warn on the West, this time by dedicating three pages in the Communist Party newspaper Granma that quotes excerpts from a 2006 book by investigative journalist Daniel Estulin entitled "The Secrets of the Bilderberg Club".

In a nutshell, Estulin’s book makes the tempting case that an elite group of political, academic and economic leaders are, as quoted by Castro, “ushering in a world government that knows no borders and is not accountable to anyone but its own self.”Castro went on to call the book a “fantastic story” that draws public attention to “sinister cliques and the Bilderberg lobbyists” that are making a mockery of Western democratic traditions.The Bilderberg Group, which holds annual closed-door meetings that are rarely covered by the mainstream media, got its name from a hotel in Holland where it commenced its first meeting in 1954. This year’s meeting was held in Spain, at the luxury Dolce Hotel in Sitges from June 3-6, and was opened by Spanish Prime Minister José Luis Rodríguez Zapatero. Thanks to growing interest in the group, which has become something of an Internet sensation, there was no shortage of protesters outside of this year's venue.Is Castro on to something?Although international meetings that bring together the world’s movers and shakers occur on a regular basis, Bilderberg Group functions are different in that they convene behind closed doors, while the mainstream corporate media, despite having numerous representatives at these annual events, never reveals the content of what is discussed.The Bilderberg Group website, which consists of just one page, defends its activities by tersely stating between nibbles of a caviar-coated cracker: “Bilderberg is a small, flexible, informal and off-the-record international forum in which different viewpoints can be expressed and mutual understanding enhanced. Bilderberg's only activity is its annual Conference. At the meetings, no resolutions are proposed, no votes taken, and no policy statements issued.”The website failed to explain, however, the coincidence of prominent guests who have gone on to be elected as political leaders of their respective countries, including Bill Clinton who first attended in 1991.The rare photographs taken of public figures whisked into these insanely secret events behind an iron phalanx of security have naturally fed numerous conspiracy theories over the motivation behind these meetings. Meanwhile, the guest list to these events is a veritable who’s who of the most influential people of our times.Here is a brief peek at some of the big-name attendees of this year’s power pow-wow that were leaked to the media: Bill Gates, Microsoft chairman; Richard Holbrooke, Special Representative for Afghanistan and Pakistan; Henry Kissinger, former US Secretary of State; Moisès Naìm, Editor-in-Chief, Foreign Policy; Her Majesty the Queen of the Netherlands; Her Majesty the Queen of Spain; Robert Rubin, Co-chairman, Council on Foreign Relations; Eric Schmidt, CEO, Google; Paul Volcker, US Economic Recovery Advisory Board; Peter Vosel, CEO, Royal Dutch Shell plc; Robert Zoellick, President, World Bank.And the list goes on, but unfortunately any sort of mainstream reporting on these meetings does not.Although Castro’s personal endorsement of Estulin’s book will draw attention to the mystery that surrounds Bilderberg, the diehard Cuban leader was not the first person to pull the lid off of this story.Europe is also puzzledOn the initiative of Mario Borghezio, Italian Member of the European Parliament (Lega Nord, Europe of Freedom and Democracy Group), Daniel Estulin addressed the European Parliament in a press conference entitled “Bilderberg Group – Towards the Creation of a One World Company Ltd.?”During the conference, Estulin accused North American and European elites of conspiring to create a so-called “aristocracy of purpose” in order to “control the necessities of life for the rest of the planet.”Seemingly unpredictable events, Estulin argues, like the recent financial implosion that had powerful aftershocks around the planet, are actually nothing more than planned catastrophes designed to bring about the "One World Company, Ltd."At the same press conference, Borghezio used the opportunity to criticize the “selection” of Herman van Rompuy as the first president of the European Union, whose nomination was allegedly sealed after he was seen rubbing elbows at a recent Bilderberg event alongside the likes of Henry Kissinger, former prime minister of Sweden Carl Bildt and David Rockefeller, one of the great granddads of the annual get-together.Here is the British media’s take on van Rompuy’s rise to power:“The man tipped to be Europe’s first president is already considering new EU taxes to fund the rising cost of Brussels and the welfare state.”Herman Van Rompuy, the Belgian Prime Minister, broke his silence before Thursday’s summit to choose the president – but only at a meeting of the secretive Bilderberg group of top politicians, bankers and businessmen.”Mr. Van Rompuy’s contentious remarks were aired privately amid the grand surroundings of the Castle of the Valley of the Duchess near Brussels. The château hosted the talks on the Treaty of Rome in 1957 that launched the European Union.”Clearly, the selection of van Rompuy by an elite minority of champagne-sipping individuals flies in the face of democratic theory and hurls Europe back into the Dark Ages when the voice of the people was considered bothersome at best.“For me,” Borghezio told the conference, the selection of van Rompuy “relates to events that take place in absolute confidentiality, without public control, and had I not exposed it myself, we probably would still not have known about van Rompuy’s affiliations.”Castro, who has been in power through 11 US presidencies (he has predicted that he will not survive Obama's first term in office), has frequently harbored suspicions of conspiratorial plots. The former president has gone on the record as saying the events of September 11, for example, was an inside job by the US government to promote military expenditures and global reach.Castro, who underwent emergency intestinal surgery in July 2006, handed over presidential powers to his brother Raul in February 2008. Yet this has not stopped the Communist from speaking his mind on matters of international urgency.On August 8, Castro convened a special session of the Cuban parliament to discuss the threat of a "nuclear holocaust" over the Middle East crisis involving Israel, Iran and the United States. He even made a personal plea to US President Barack Obama to “avoid the worst possible outcome,” which would spell “disaster for humanity.”Webster G. Tarpley, a frequent commentator on RT, noted that the US media largely ignored Castro’s warnings.“Not surprisingly,” Tarpley was quoted by Global Research as saying, “the controlled Wall Street news media in the United States did everything possible to trivialize, denigrate and ridicule this dramatic warning. Frivolity and inanity rule US news coverage this summer.”It is no surprise that the same media “frivolity and inanity” that is able to ignore warnings by a veteran global leader on the perils of a potential nuclear holocaust, is also able to ignore accusations that an ultra-secret organization is trampling recklessly on democratic terrain.The question, however, is not whether the accusations against the Bilderberg Group are true or false, but rather why the international corporate media, despite having front row seats at these elite meetings, continually fail to report the content of these events to the public. Given the high-profile guest lists year after year, which regularly include the leaders of practically every Western power, this seems to be part of the public's "right to know."Although Fidel Castro will never be elected as democracy’s poster boy, he seems to have a very valid argument in questioning the existence of a secretive group such as Bilderberg, which seems to have next to nothing in common with the West’s democratic traditions.Secrecy regardless of the justifications has absolutely no place in a modern democracy.

"No investment will pay returns as high as paying down debt." - Nolan Lickey, Business

{We here at Sound Of Cannons certainly hope that all of our readers are as debt-free as fiscally possible. IF YOU ARE NOT, heed our words and work relentlessly at getting out of debt. It's the best thing you can do right now regardless of your wealth-standing. Get debt free and then have the funds to weather the oncoming storm.}

And he’s out. The blind mathematician behind the Hindenburg Omen (you remember, that’s the technical indicator that tells us a stock market crash is nigh) tells the Wall Street Journal he’s gotten out of stocks a little more than a week before September, when this crash is supposed to happen.Jim Miekka, who developed the indicator more than a decade ago, says its “sort of like a funnel cloud. It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.”The Hindenburg Omen, named after the airship that exploded as it was docking in New Jersey in 1937, has preceded every crash since 1987, but it has also popped up plenty of times without any subsequent market decline. It resurfaced in mid-August and became popular fodder for various trading oriented blogs. It was triggered by two important statistical events. One, NYSE highs and lows both exceeded 2.5% — stocks reaching 52-week highs were 2.9% of stocks traded at the Big Board, while stocks hitting 52-week lows were 2.6%. And two, a rising 10-week moving average for the NYSE compared to a negative indicator that shows market fluctuations (the McClellan Oscillator).The trends had to be reconfirmed, and they were last week.It’s been a quiet, relatively boring summer compared to the previous two summers, but talk of an upcoming crash may be spooking investors. From May through July, investors have taken a net $44 billion out of U.S. domestic equity funds and billions more out of exchange traded funds focused on U.S. equities, according to Morningstar.Traders like to obsess about indicators. Another one that got markets buzzing earlier this summer is called the Death Cross, in which a security’s long term moving average falls below its short term moving average. In July, the S&P 500’s 50-day average dropped to 1,122.48 compared with the 200-day mean of 1,112.22. The “bearish abandoned baby” is yet another one watched by technical traders. There is also the old “dead cat bounce,” in which a stock in a downdraft sharply reverses course, usually because short sellers have to cover.

Gloom, Boom and Doom editor Marc Faber advises investors to avoid long-term Treasury bonds and China."I think eventually inflation will accelerate," Faber told CNBC. "Whenever food prices go up, and grains have been very strong recently, with the sum delay, you get inflationary pressures."Faber expects the U.S. dollar will weaken. “That's the policy of the U.S. government, to weaken the dollar in order to cushion the downturn in the American economy," he says.He does, however, like the idea of investing in India. “If I look at the long-term potential . . . there is an emerging middle class and capitalism has now been truly endorsed by everybody," he says, plus India has some "very well run" companies.Faber also likes investing in Mongolia, which he “believes has the potential to be the Saudi Arabia of Asia because they only have 2.5 million people.”“It is a huge land mass and very resource rich," he says. "They have in the Gobi dessert, copper, gold, coal and much more would be found, in the future."As Mongolia’s second-highest export partner after China, Canada is also the largest foreign investor in Mongolia’s resource sector, with 25 firms active in the country, The Toronto Star reports.Canadian companies spent an estimated $500 million in 2008 on drilling and improvements to their properties, a figure that would grow rapidly if the industry expands.Significant deposits in Mongolia include uranium, molybdenum, iron ore, copper, and gold.

How Hyperinflation Will HappenRight now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggregate asset prices as never before. Since the credit crunch of September 2008, the U.S. and world economies have been slowly circling the deflationary drain.To counter this, the U.S. government has been running massive deficits, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, the same old prescription since donkey’s ears.But the stimulus, apart from being slow and inefficient, has simply not been enough to offset the fall in consumer spending. For its part, the Federal Reserve has been busy propping up all assets—including Treasuries—by way of “quantitative easing”.The Fed is terrified of the U.S. economy falling into a deflationary death-spiral: Lack of liquidity, leading to lower prices, leading to unemployment, leading to lower consumption, leading to still lower prices, the entire economy grinding down to a halt. So the Fed has bought up assets of all kinds, in order to inject liquidity into the system, and bouy asset price levels so as to prevent this deflationary deep-freeze—and will continue to do so. After all, when your only tool is a hammer, every problem looks like a nail.But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)—in short, everything screams “deflation”. Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation. Most people dismiss the very notion of hyperinflation occurring in the United States as something only tin-foil hatters, gold-bugs, and Right-wing survivalists drool about. In fact, most sensible people don’t even bother arguing the issue at all—everyone knows that only fools bother arguing with a bigger fool. A minority, though—and God bless ’em—actually do go ahead and go through the motions of talking to the crazies ranting about hyperinflation.

These amiable souls diligently point out that in a deflationary environment—where commodity prices are more or less stable, there are downward pressures on wages, asset prices are falling, and credit markets are shrinking—inflation is impossible. Therefore, hyperinflation is even more impossible. This outlook seems sensible—if we fall for the trap of thinking that hyperinflation is an extention of inflation. If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous. But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same. Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena. Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency. Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion.

The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy. This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion——but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is. So this is how hyperinflation will happen: One day—when nothing much is going on in the markets, but general nervousness is running like a low-grade fever (as has been the case for a while now)—there will be a commodities burp: A slight but sudden rise in the price of a necessary commodity, such as oil.This will jiggle Treasury yields, as asset managers will reduce their Treasury allocations, and go into the pressured commodity, in order to catch a profit. (Actually it won’t even be the asset managers—it will be their programmed trades.) These asset managers will sell Treasuries because, effectively, it’s become the principal asset they have to sell. It won’t be the volume of the sell-off that will pique Bernanke and the drones at the Fed—it will be the timing. It’ll happen right before a largish Treasury auction. So Bernanke and the Fed will buy Treasuries, in an effort to counteract the sell-off and maintain low yields—they want to maintain low yields in order to discourage deflation. But they’ll also want to keep the Treasury cheaply funded. QE-lite has already set the stage for direct Fed buys of Treasuries. The world didn’t end. So the Fed will feel confident as it moves forward and nips this Treasury yield jiggle in the bud. The Fed’s buying of Treasuries will occur in such a way that it will encourage asset managers to dump even more Treasuries into the Fed’s waiting arms. This dumping of Treasuries won’t be out of fear, at least not initially. Most likely, in the first 15 minutes or so of this event, the sell-off in Treasuries will be orderly, and carried out with the idea (at the time) of picking up those selfsame Treasuries a bit cheaper down the line. However, the Fed will interpret this sell-off as a run on Treasuries. The Fed is already attuned to the bond markets’ fear that there’s a “Treasury bubble”. So the Fed will open its liquidity windows, and buy up every Treasury in sight, precisely so as to maintain “asset price stability” and “calm the markets”. The Too Big To Fail banks will play a crucial part in this game. See, the problem with the American Zombies is, they weren’t nationalized. They got the best bits of nationalization—total liquidity, suspension of accounting and regulatory rules—but they still get to act under their own volition, and in their own best interest. Hence their obscene bonuses, paid out in the teeth of their practical bankruptcy. Hence their lack of lending into the weakened economy. Hence their hoarding of bailout monies, and predatory business practices. They’ve understood that, to get that sweet bail-out money (and those yummy bonuses), they have had to play the Fed’s game and buy up Treasuries, and thereby help disguise the monetization of the fiscal debt that has been going on since the Fed began purchasing the toxic assets from their balance sheets in 2008.

But they don’t have to do what the Fed tells them, much less what the Treasury tells them. Since they weren’t really nationalized, they’re not under anyone’s thumb. They can do as they please—and they have boatloads of Treasuries on their balance sheets. So the TBTF banks, on seeing this run on Treasuries, will add to the panic by acting in their own best interests: They will be among the first to step off Treasuries. They will be the bleeding edge of the wave. Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt. They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound. Notice, too, that Treasuries will maintain their yields in the face of this sell-off, at least initially. Why? Because the Fed, so determined to maintain “price stability”, will at first prevent yields from widening—which is precisely why so many will decide to sell into the panic: The Bernanke Backstop won’t soothe the markets—rather, it will make it too tempting not to sell.The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?Commodities. By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008. It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps. If oil spikes from $74 to $150 in a day, and then to $300 in a matter of a week—perfectly possible, in the midst of a panic—the gallon of gasoline will go to, what: $10? $15? $20?So what happens then? People—regular Main Street people—will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon. If everyone decides at roughly the same time to exchange one good—currency—for another good—commodities—what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.When people freak out and begin panic-buying basic commodities, their ordinary financial assets—equities, bonds, etc.—will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities.So immediately after the Treasury markets tank, equities will fall catastrophically, probably within the next few days following the Treasury panic. This collapse in equity prices will bring an equivalent burst in commodity prices—the second leg up, if you will. This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America). Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How? Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it. Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right? In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . . (BTW, I actually think that this last option is something the Federal government might be foolish enough to try. Some moron like Palin or Biden might well advocate this idea of helter-skelter money-printing so as to “help all hard-working Americans”. And if they carried it out, this would bring us American-made images of people using bundles of dollars to feed their chimneys. I actually don’t think that politicians are so stupid as to actually start printing money to “fight rising prices”—but hey, when it comes to stupidity, you never know how far they can go.)In fact, the only way the Federal government might be able to ameliorate the situation is if it decided to seize control of major supermarkets and gas stations, and hand out cupon cards of some sort, for basic staples—in other words, food rationing. This might prevent riots and protect the poor, the infirm and the old—it certainly won’t change the underlying problem, which will be hyperinflation. “This is all bloody ridiculous,” I can practically hear the hyperinflation skeptics fume. “We’re just going through what the Japanese experienced: Just like the U.S., they went into massive government stimulus—hell, they invented quantitative easing—and look what’s happened to them: Stagnation, yes—hyperinflation, no.”That’s right: The parallels with Japan are remarkably similar—except for one key difference. Japanese sovereign debt is infinitely more stable than America’s, because in Japan, the people are savers—they own the Japanese debt. In America, the people are broke, and the Nervous Nelly banks own the debt. That’s why Japanese sovereign debt is solid, whereas American Treasuries are soap-bubble-fragile. That’s why I think there’ll be hyperinflation in America—that bubble’s soon to pop. I’m guessing if it doesn’t happen this fall, it’ll happen next fall, without question before the end of 2011. The question for us now—ad portas to this hyperinflationary event—is, what to do?Neanderthal survivalists spend all their time thinking about post-Apocalypse America. The real trick, however, is to prepare for after the end of the Apocalypse. The first thing to realize, of course, is that hyperinflation might well happen—but it will end. It won’t be a never-ending situation—America won’t end up like in some post-Apocalyptic, Mad Max: Beyond Thuderdome industrial wasteland/playground. Admittedly, that would be cool, but it’s not gonna happen—that’s just survivalist daydreams. Instead, after a spell of hyperinflation, America will end up pretty much like it is today—only with a bad hangover. Actually, a hyperinflationist spell might be a good thing: It would finally clean out all the bad debts in the economy, the crap that the Fed and the Federal government refused to clean out when they had the chance in 2007–’09. It would break down and reset asset prices to more realistic levels—no more $12 million one-bedroom co-ops on the UES. And all in all, a hyperinflationist catastrophe might in the long run be better for the health of the U.S. economy and the morale of the American people, as opposed to a long drawn-out stagnation. Ask the Japanese if they would have preferred a couple-three really bad years, instead of Two Lost Decades, and the answer won’t be surprising. But I digress. Like Rothschild said, “Buy when there’s blood on the streets.” The thing to do to prepare for hyperinflation would be to invest in a diversified hard-metal basket before the event—no equities, no ETF’s, no derivatives. If and when hyperinflation happens, and things get bad (and I mean really bad), take that hard-metal basket and—right in the teeth of the crisis—buy residential property, as well as equities in long-lasting industries; mining, pharma and chemicals especially, but no value-added companies, like tech, aerospace or industrials. The reason is, at the peak of hyperinflation, the most valuable assets will be dirt-cheap—especially equities—especially real estate.I have no idea what will happen after we reach the point where $100 is no longer enough to buy a cup of coffee—but I do know that, after such a hyperinflationist period, there’ll be a “new dollar” or some such, with a few zeroes knocked off the old dollar, and things will slowly get back to a new normal. I have no idea the shape of that new normal. I wouldn’t be surprised if that new normal has a quasi or de facto dictatorship, and certainly some form of wage-and-price controls—I’d say it’s likely, but for now that’s not relevant. What is relevant is, the current situation cannot long continue. The Global Depression we are in is being exacerbated by the very measures being used to fix it—stimulus is putting pressure on Treasuries, which are being shored up by the Fed. This obviously cannot have a happy ending. Therefore, the smart money prepares for what it believes is going to happen next. I think we’re going to have hyperinflation. I hope I have managed to explain why.

Bancor: The Name Of The Global Currency That A Shocking IMF Report Is ProposingSometimes there are things that are so shocking that you just do not want to report them unless they can be completely and totally documented. Over the past few years, there have been many rumors about a coming global currency, but at times it has been difficult to pin down evidence that plans for such a currency are actually in the works. Not anymore. A paper entitled "Reserve Accumulation and International Monetary Stability" by the Strategy, Policy and Review Department of the IMF recommends that the world adopt a global currency called the "Bancor" and that a global central bank be established to administer that currency. The report is dated April 13, 2010 and a full copy can be read here. Unfortunately this is not hype and it is not a rumor. This is a very serious proposal in an official document from one of the mega-powerful institutions that is actually running the world economy. Anyone who follows the IMF knows that what the IMF wants, the IMF usually gets. So could a global currency known as the "Bancor" be on the horizon? That is now a legitimate question.So where in the world did the name "Bancor" come from? Well, it turns out that "Bancor" is the name of a hypothetical world currency unit once suggested by John Maynard Keynes. Keynes was a world famous British economist who headed the World Banking Commission that created the IMF during the Breton Woods negotiations.The Wikipedia entry for "Bancor" puts it this way....The bancor was a World Currency Unit of clearing that was proposed by John Maynard Keynes, as leader of the British delegation and chairman of the World Bank commission, in the negotiations that established the Bretton Woods system, but has not been implemented.The IMF report referenced above proposed naming the coming world currency unit the "Bancor" in honor of Keynes.So what about Special Drawing Rights (SDRs)? Over the past couple of years, SDRs have been touted as the coming global currency. Well, the report does envision making SDRs "the principal reserve asset" as we move towards a global currency unit...."As a complement to a multi-polar system, or even—more ambitiously—its logical end point, a greater role could be considered for the SDR."However, the report also acknowledges that SDRs do have some serious limitations. Since the value of SDRs are closely tied to national currencies, anything affecting those currencies will affect SDRs as well.Right now, SDRs are made up of a basket of currencies. The following is a breakdown of the components of an SDR....*U.S. Dollar (44 percent)*Euro (34 percent)*Yen (11 percent)*Pound (11 percent)The IMF report recognizes that moving to SDRs is only a partial move away from the U.S. dollar as the world reserve currency and urges the adoption of a currency unit that would be truly international. The truth is that SDRs are clumsy and cumbersome. For now, SDRs must still be reconverted back into a national currency before they can be used, and that really limits their usefulness according to the report...."A limitation of the SDR as discussed previously is that it is not a currency. Both the SDR and SDR-denominated instruments need to be converted eventually to a national currency for most payments or interventions in foreign exchange markets, which adds to cumbersome use in transactions. And though an SDR-based system would move away from a dominant national currency, the SDR’s value remains heavily linked to the conditions and performance of the major component countries."So what is the answer?Well, the IMF report believes that the adoption of a true global currency administered by a global central bank is the answer.The authors of the report believe that it would be ideal if the "Bancor" would immediately be used as currency by many nations throughout the world, but they also acknowledge that a more "realistic" approach would be for the "Bancor" to circulate alongside national currencies at first...."One option is for bancor to be adopted by fiat as a common currency (like the euro was), an approach that would result immediately in widespread use and eliminate exchange rate volatility among adopters (comparable, for instance, to Cooper 1984, 2006 and the Economist, 1988). A somewhat less ambitious (and more realistic) option would be for bancor to circulate alongside national currencies, though it would need to be adopted by fiat by at least some (not necessarily systemic) countries in order for an exchange market to develop."So who would print and administer the "Bancor"?Well, a global central bank of course. It would be something like the Federal Reserve, only completely outside the control of any particular national government...."A global currency, bancor, issued by a global central bank (see Supplement 1, section V) would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing."In fact, at one point the IMF report specifically compares the proposed global central bank to the Federal Reserve...."The global central bank could serve as a lender of last resort, providing needed systemic liquidity in the event of adverse shocks and more automatically than at present. Such liquidity was provided in the most recent crisis mainly by the U.S. Federal Reserve, which however may not always provide such liquidity."So is that what we really need?A world currency administered by an international central bank modeled after the Federal Reserve?Not at all.As I have written about previously, the Federal Reserve has devalued the U.S. dollar by over 95 percent since it was created and the U.S. government has accumulated the largest debt in the history of the world under this system.So now we want to impose such a system on the entire globe?The truth is that a global currency (whether it be called the "Bancor" or given a different name entirely) would be a major blow to national sovereignty and would represent a major move towards global government.Considering how disastrous the Federal Reserve system and other central banking systems around the world have been, why would anyone suggest that we go to a global central banking system modeled after the Federal Reserve?Let us hope that the "Bancor" never sees the light of day.However, the truth is that there are some very powerful interests that are absolutely determined to create a global currency and a global central bank for the global economy that we now live in.It would be a major mistake to think that it can't happen.

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